CARES Act Favorable Tax Treatment for Retirement Plan Distributions

[Ian S]

So I'm working through our taxes and came across the section where by filing Form 8915-E, a "qualified individual" who has been adversely affected by the COVID-19 pandemic can get more favorable tax treatment for retirement plan distributions during 2020. My husband was furloughed and ultimately terminated due to the pandemic. I have taken tIRA distributions throughout the year and have paid taxes via withholding on them. (They are not RMDs.) As far as I can tell, the benefit of characterizing these distributions as due to the pandemic are for me twofold: first, I can spread out the taxes over up to a three year period or second, I can redeposit the distributions over the same period and get the taxes paid back.

I don't expect to want to redeposit the distributions and I'm not sure the extra paperwork is worth the savings on delaying the taxes. Has anyone here who is eligible for this considered all the pros and cons? Have I missed anything?

[cathy63]

If you expect your income to be lower in the next two years, then it makes sense to spread the taxes out. The paperwork is minimal if you use software to do your own taxes. If you pay a preparer, then it might end up costing more than it's worth.

[chassis]

Spreading taxes over three years is a fundamentally good thing for a taxpayer. Additional paperwork is minimal, nearly nothing, trivial.

When the government offers me the opportunity to give them money at a slower pace, in this case spread over three years rather than all in one year, I do it gleefully.

[VanWinkle]

Per the IRS, here are the requirements to qualify:


Q3. Am I a qualified individual for purposes of section 2202 of the CARES Act?
A3. You are a qualified individual if –

You are diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention;
Your spouse or dependent is diagnosed with SARS-CoV-2 or with COVID-19 by a test approved by the Centers for Disease Control and Prevention;
You experience adverse financial consequences as a result of being quarantined, being furloughed or laid off, or having work hours reduced due to SARS-CoV-2 or COVID-19;
You experience adverse financial consequences as a result of being unable to work due to lack of child care due to SARS-CoV-2 or COVID-19; or
You experience adverse financial consequences as a result of closing or reducing hours of a business that you own or operate due to SARS-CoV-2 or COVID-19.
Under section 2202 of the CARES Act, the Treasury Department and the IRS may issue guidance that expands the list of factors taken into account to determine whether an individual is a qualified individual as a result of experiencing adverse financial consequences. The Treasury Department and the IRS have received and are reviewing comments from the public requesting that the list of factors be expanded.